MFDA fines Excel Private Wealth $40K for inadequate due diligence

Quebec-based Excel Private Wealth Inc. has been fined $40,000 by an MFDA hearing panel for inadequate due diligence, including failure to supervise the referral of syndicated mortgage investments.

Excel Private Wealth admitted in a settlement agreement that it failed to conduct due diligence on an employee’s referral arrangement of syndicated mortgage investments in December 2013. The employee referred three investors, two of whom were clients, to purchase syndicated mortgages without Excel’s knowledge or approval.

An MFDA bulletin issued in November 2013 required all syndicated mortgages sold or referred by approved persons to be facilitated through the member.

The employee told Excel Private Wealth in August 2014 about the referral arrangement, the settlement agreement says. Excel approved the arrangement in September 2014 without getting a written copy or reviewing the terms of the arrangement.

Excel approved the referral arrangement “that they knew or ought to have known was impermissible because it allowed for the sale of securities outside its facilities and otherwise did not comply with the regulatory requirements pertaining to referral arrangements,” the settlement agreement says.

The firm didn’t ensure the referral arrangement and the features and risks of the investments were adequately disclosed to the clients, the agreement says, and didn’t investigate whether other clients had purchased the syndicated mortgage investments until it was asked to do so in December 2016.

Other supervisory failures

In 2016, the MFDA conducted a compliance exam of the firm and found it didn’t have a tier-two supervision system in place. Such a system wasn’t put in place until January 2017. When two firms amalgamated to form Excel in 2016, they moved from two back-office systems to one and stopped conducting tier-two supervision, the agreement says.

When the MFDA conducted another compliance examination of the firm from October to December 2017, it found the firm had failed to conduct quarterly trend analysis reviews since June 2016.

In addition to the $40,000 fine, the firm must pay costs of $7,500.

Excel Private Wealth had no previous disciplinary history with the MFDA.

Read the settlement agreement here.